William Blair sees flat CarMax stock used unit comps in May quarter

William Blair expects CarMax to post flat May-quarter used unit comparable sales, better than the 2.5% to 3.0% decline expected by consensus, and sees first-quarter EPS of $1.10 versus $0.96 consensus. For the full year, it projects 3% used unit comp growth and EPS of $2.41, both above Street estimates. The note is positive on relative expectations but still points to pressure on gross profit per unit and direct lending income.

Analysis

The key signal is not just that used-auto demand is holding up, but that margin dispersion is widening between asset-light retail execution and balance-sheet-driven finance income. KMX looks like the cleaner operating story: even if unit growth is muted, the combination of SG&A leverage and better-than-feared comps can support earnings stability, while the market is likely still too focused on near-term gross margin pressure rather than the path to higher conversion in a slower rate environment. The second-order effect is that any confidence in a flat-to-positive used market helps channel share away from weaker local independents and keeps wholesale inventory values from deteriorating further.

CVNA remains the higher-beta expression, but the bull case is increasingly about operating leverage plus adjacent monetization, not just unit growth. If reconditioning costs are peaking while volumes continue to compound, the next leg of upside comes from margin normalization, not top-line surprise, which means the stock can rerate sharply if management simply avoids a guide-down. ROOT is the sleeper winner: embedded distribution through a dominant auto-commerce platform can turn a single-partnership win into a durable policy annuity, and the market may be underestimating how quickly this can scale if attach rates improve without incremental acquisition spend.

Barclays’ macro caution matters more for the pace of upside than the direction: softer industry sales can compress near-term beats, but it also raises the value of market-share gains for CVNA and the premium placed on KMX’s cost discipline. The contrarian risk is that the consensus may be over-penalizing the retailers for cyclical auto demand while underpricing the structural improvement in efficiency and monetization. If used pricing weakens again over the next 1-2 quarters, KMX’s finance-income cushion is the first thing to break, but if rates stay sticky and wholesale supply remains tight, both names can outperform on multiple expansion rather than explosive unit growth.

Key Decisions for Investors

• Long KMX vs short a basket of weaker auto-retailers for 1-2 quarters: the setup favors execution-heavy operators with SG&A leverage; target 10-15% relative outperformance if comps stay flat-to-up and margins hold better than feared.
• Buy CVNA on post-earnings weakness rather than pre-earnings strength; upside is best captured if the print confirms no margin inflection down. Risk/reward is attractive into a selloff because the stock can rerate 15-25% on a clean beat, but downside is sharp if reconditioning costs surprise again.
• Add ROOT as a high-beta embedded-insurance call on CVNA distribution, but size modestly: the partner channel can scale faster than the market expects, giving asymmetric upside over 6-12 months if policy growth compounds without meaningfully higher CAC.
• Pair long CVNA / short BCS as a macro-neutral way to express analyst-estimate dispersion in auto retail: if industry sales stay soft, the winner should be the name with the strongest share gains and operating leverage, not the one most exposed to broad market demand.
• For options traders, consider KMX call spreads into the quarter if implied volatility remains cheap versus the likely beat magnitude; the cleaner thesis is modest upside with lower earnings surprise risk than CVNA.